What can a personal loan be used for?
Personal loans can be used for various purposes; it can be obtained from a specific bank or online. The borrower can borrow a personal loan to pay for unexpected charges such as hospital bills, or services like house renovation, car repairs, debt payments, debt consolidation, car purchase etc. It can also be used for paying other bills like school fees and professional bills as long as it makes sense to do so. Even though it’s not easy to obtain personal loans without meeting certain requirements, there are some basic things you should know about personal loans.
Borrowing an unsecured personal loan
Personal loans can be unsecured: This means that the person who is interested in getting a personal loan won’t be asked to provide a collateral as a requirement for getting the loan. This usually means you will face higher interest rate because the financial institution that gives out the loan won’t be able to claim an asset of the borrower in cases when the borrower can’t pay the debt owed. Although, there are other means of getting the money back from the borrower in such cases. The lender can file a lawsuit or employ the services of a collection agency that operates by consistently embarrassing the borrower.
In addition, personal loans are fixed amounts depending on the financial capacity of the lender, the credit score of the lender and the borrowing history. Nevertheless, some financial institution has prefixed amounts for their personal loans. Borrowers can choose site like MoneyLend to compare different personal loan offers from reputable lenders.
Personal loan interest rates & terms
Another basic thing to know about a personal loan is that the interest rate is fixed. Most times, the interest rate depends on the borrower’s credit rating. Therefore, having a good credit score generally benefits a lower interest rate from the lender. Also, the time for repayment is fixed. The period is fixed for paying personal loans depends on the size of the loan. Small or short term loans are paid between six to twelve months while large personal loans are paid between one to five years. Having a longer term loan will give you a smaller monthly payments but the long period for payment will get you higher interest and more payments in comparison with loans that are paid within a short period of time.
How does it affect my credit?
It’s important to know that getting personal loans will affect your credit rating. Financial institutions report the information about the loan to credit bureaus that are involved with the monitoring of accounts and the credit rating. In situations that result in default of the regular payments, this will greatly affect the credit rating of the account and will eventually reduce the possibility of getting another loan in the nearest future. It can also affect the tendency of getting a credit card as well.
Borrowers should be careful of lenders or financial institutions that are ready to loan them money despite having an unimpressive credit history. Such cases eventually become scams, especially when borrowers are asked to pay a certain amount of money before they get the personal loan they are applying for via money transfer or other means. Therefore, research on the loan may be necessary.